December 20, 2017

The Age Warfare Era Has Officially Begun

Economics has always assumed that Capital (K) and Labor (L) are complementary factors of production (Y).

Look how pretty and sophisticated this economic abstraction looks

Meaning, roughly, that you can't produce something with K if you don't have a bunch of people (L) pulling K's levers and buttons. Alas. As is the case with many things economists have cooked up in their simplistic, impossibly abstract assumptions, this is not even close to reality.

K and L are fundamentally different. L is human; K isn't. K might be owned by a human (the Capitalist), but K does not function the same way as L does. K doesn't go to restaurants. K doesn't buy gifts for its family on Christmas.

Any income K receives, it recycles it back into itself, compounding its power; into reinvestment, and away from restaurant dinners and Christmas shopping for the family because, well, K doesn't have a family.

There used to be a time in the past when K and L formed a successful symbiosis. Despite K's technological advance back then, L was not kicked out of the equation. It was the famed "goldilocks" period of post WWII. Back then, technological progress was helpful for the economy because tech was, in reality, "crippled tech": it needed the arms, hands, and muscles of L to function. And in needing so, L partook in the profits, recycling in turn their wages into an economy that employed more L.

"K creates jobs!" Say the trickle-down economics evangelists, anchoring their minds to the "goldilocks" post WWII era.

If only this was true. The world has evolved. Automation has kicked L out of the process, and deprived them of sustenance wages. Anyone who still believes that money in the hands of K's owners means more jobs for humans is either trapped in a time capsule or flat out lying.

And yet. Somehow, we can't bring ourselves to hate K, its owners, or automation, the same way we do foreign Labor, Globalization or Offshoring. More than that: some even trust K and its owners to redistribute their profits for the benefit of the economy, even though by definition K is designed not to do it. That K's intrinsic quest for profit maximizing is behind every single automation effort shattering job opportunities for L everywhere is of no importance at all, it seems. It's as if we are incapable of assigning blame on a factor of production because it is faceless, even though we all know it isn't.

All this is to say, at risk of stating the obvious, that Capitalism is not compatible with Labor, and that technology (K's ally) will inexorably keep exacerbating inequality, evaporating jobs, and undermining the broad-based consumption needed for a market economy to function. The confiscation of purchasing power out of the hands of those who would spend it in the economy will continue unabated.

Shareholder value maximization (K's mechanism to compound itself) is, thus, also against Labor. Any populist promise to create jobs by enlisting the help of K and/or K's owners is a scam. Will more money in the hands of Corporations (K's legal personification) create some economic growth? Perhaps. Share repurchases might push equity levels up (thru artificial accounting engineering), creating a wealth effect for that minority of equity owners (K's owners), who already carry the lyon share of consumption in the economy, but who can't possibly replicate (even if they wanted) the mass consumption that L's wages make possible.

Is the economic jolt of this measure worth $1.5tn of debt? I don't think so. Political myopia has driven the latest attempt to jump start the economy, pushing the time of reckoning for another generation. One that already has $1tn in student loan debt, and who will also bear the burden of the cost of retirement of the baby boomer generation to boot.

The anachronistic view that conceived this tax cut, one still enamored with the goldilocks era of technological progress and Reaganistic tax cuts, has handed over $1.5tn in debt to this young generation.

We've officially begun the era of Age Warfare.